Alcoa’s revenue and adj-earnings were both higher on a year-on-year (y-o-y) basis, exhibiting the company’s strong quarter performance. Revenue displayed a y-o-y growth of 16%, largely benefiting from higher aluminum and alumina prices and higher alumina shipment volume, slightly offset by lower aluminum shipments. Aluminum shipments were lower in Q1 and in line with the company’s guidance for lower production volume throughout 2018 due to the ongoing curtailment of its Aluminerie de Bécancour Inc. (ABI) smelter. Furthermore, improved aluminum prices and lower energy costs helped offset the negative impact of seasonal volume decline and higher raw material costs for the company and resulted in a 22% y-o-y EPS (Non-GAAP) growth rate.

The latest developments in the market have also resulted in Alcoa raising its 2018 EBITDA guidance upward. The company’s prior quarter’s guidance of $2.6 billion to $2.8 billion has been revised to $3.5 billion to $3.7 billion for 2018, depicting the favorable impact of these developments. The company reiterated that the upward guidance is largely due to the favorable price impact that the commodities market is expected to experience as a consequence of the latest tariffs and sanctions imposed in the U.S. Additionally, the company projects both the alumina and aluminum market to be in a supply deficit for full-year 2018 as a consequence of the current market-moving factors, which is expected to be further exaggerated by the restart of the Chinese production curtailments in the latter half of the year.

Thus, on the basis of these arguments, Alcoa is poised to have a strong year ahead, magnified greatly by the recent favorable development of the aluminum market. We have updated our base case assumptions based on this updated guidance and have arrived at a $60.90 fair price estimate for the company for 2018. You can make changes to our estimates to arrive at your own fair price estimate for the company by using our interactive dashboard.

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